Fannie Mae needs $3.7 billion infusion of federal cash

Alma Romero |Thursday, February 15, 2018

Fannie Mae Will Require Treasury Draw of About $3.7 Billion

The other shoe dropped: One day after Fannie Maereported a net loss of $6.5 billion in the fourth quarter of 2017 and the need for a $3.7 billion from the Treasury Department, Freddie Mac reported a $3.3 billion fourth quarter loss and the need for a $300 million Treasury draw. "To eliminate the company's net worth deficit, the company expects the director of the Federal Housing Finance Agency will submit a request to Treasury on the company's behalf for $3.7 billion", it said in a news release.

"Our 2017 results demonstrate that the fundamentals of our business are strong", said Timothy Mayopoulos, the president and chief executive of Fannie Mae, in a prepared statement. "While the fourth quarter was affected by a one-time accounting charge, we expect to benefit from a lower tax rate going forward".

The government rescued Fannie Mae and Freddie Mac during the housing crisis in 2008 with a combined $187 billion taxpayer bailout.

In letters to Fannie and Freddie Mac this month, Watt wrote he didn't consider the tax-cut losses "to relate to any financial instability" in the companies "either now or in the future". Fannie Mae paid $12 billion in dividends to the Treasury in 2017.

The loss and bailout is not so much a black eye for Fannie as it is for Congress and policy makers who for more than nine years have failed to determine the futures of Fannie and Freddie Mac.

Its annual pre-tax income was $18.4 billion, compared with $18.3 billion in 2016.

"We are in a strong position to serve the changing needs of homeowners and renters, and to advance our vision to be America's most valued housing partner", Mayopoulos said. The company said the increase was a result of the recent hurricanes.

In an interview, Mayopoulos said he believed investors in the company's mortgage bonds won't be spooked by the need for taxpayer money.

"The challenge is that additional draws of taxpayer support would reduce the amount of taxpayer backing available to the enterprises under the PSPAs and the foreseeable risk that the uncertainty associated with such draws or from the reduction in committed taxpayer backing could adversely impact the housing finance market", Watt said.